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GYPSUM BOARD

Reviews (Section 76)

GYPSUM BOARD, COMPOSED PRIMARILY OF A GYPSUM CORE, WITH
PAPER SURFACING BONDED TO THE CORE, ORIGINATING IN OR EXPORTED FROM
THE UNITED STATES OF AMERICA
Review No.: RR-97-004

IN THE MATTER OF a review, under subsection 76(2) of the
Special Import Measures Act, of the finding made by the
Canadian International Trade Tribunal on January 20, 1993, in
Inquiry No. NQ-92-004, concerning:

GYPSUM BOARD, COMPOSED PRIMARILY OF A GYPSUM CORE, WITH PAPER
SURFACING BONDED TO THE CORE, ORIGINATING IN OR EXPORTED FROM THE
UNITED STATES OF AMERICA

The Canadian International Trade Tribunal, under the provisions
of subsection 76(2) of the Special Import Measures Act, has
conducted a review of its finding made on January 20, 1993, in
Inquiry No. NQ-92-004.

Pursuant to subsection 76(4) of the Special Import Measures
Act, the Canadian International Trade Tribunal hereby rescinds
the above-mentioned finding.

This is a review, under subsection 76(2) of the Special
Import Measures Act[1] (SIMA), of the finding made by the Canadian
International Trade Tribunal (the Tribunal) in Inquiry No.
NQ-92-004, [2]
concerning gypsum board, composed primarily of a gypsum core, with
paper surfacing bonded to the core, originating in or exported from
the United States of America.

Pursuant to subsection 76(2) of SIMA, the Tribunal initiated a
review of its finding and issued a notice of review [3] on June 18, 1997. This notice was
forwarded to all known interested parties.

As part of this review, the Tribunal sent questionnaires to
Canadian manufacturers, US manufacturers, Canadian purchasers and
the Gypsum Association. From the replies to these questionnaires
and other sources, the Tribunal’s research staff prepared public
and protected pre-hearing staff reports.

The record of this review consists of all relevant documents,
including the finding in Inquiry No. NQ-92-004, the notice of
review and public and confidential replies to the questionnaires
for the 1997 review and the public and protected pre-hearing staff
reports for the 1992 inquiry. All public exhibits were made
available to interested parties, while protected exhibits were
provided only to independent counsel who had filed a declaration
and confidentiality undertaking with the Tribunal.

Public and in camera hearings were held in Ottawa,
Ontario, on November 12 to 14 and 17 to 20, 1997.

During its review, the Tribunal dealt with a number of
procedural matters. One of these matters arose in connection with
interrogatories served by Westroc Inc. (Westroc) and
Georgia-Pacific Corporation (GPC) on CGC Inc. (CGC), some of which
contemplated materials in the possession and control of USG
Corporation (USG), CGC’s US parent. CGC indicated that, in light of
that fact, it could not respond to the USG-related questions.
Westroc and GPC brought a motion seeking to have the Tribunal
compel CGC to respond. After receiving extensive submissions, the
Tribunal ordered CGC to respond. In its decision, the Tribunal
found that, pursuant to the Canadian International Trade
Tribunal Act, [4]
it had jurisdiction to order parties to produce documents. It also
found that it had jurisdiction to order the production of
information by “necessary implication.” [5]

The Tribunal issued rulings circumscribing the scope of certain
interrogatories; denying a request that the hearing be postponed
or, alternatively, that an expert witness’s report be struck from
the record; and, in relevant instances, directing parties to
provide the complete text of documents that they had filed, as
opposed to selective excerpts. The Tribunal also directed counsel
for one of the parties to “show cause” of why it should accept a
witness statement filed nearly two weeks beyond the relevant
deadline. After receipt of counsel’s submission, the Tribunal
accepted the statement for filing. [6]

The product which is the subject of this review is described as
gypsum board, composed primarily of a gypsum core, with paper
surfacing bonded to the core, with the exception of:

(i) gypsum board panels with a raised surface;

(ii) gypsum board panels with bevelled edges in a thickness of
5/8 in. and in a width of 23 in., 24 in., 29 in. or 30 in.; and

(iii) plain or vinyl-faced gypsum board panels with squared
edges in a thickness of 3/8 in. or 5/16 in.;

originating in or exported from the United States.

Gypsum board has long been used as a building material in
various applications, including interior walls, partitions and
ceiling construction. It provides a durable, economical,
non-combustible and easily decorated surfacing material for
construction use. As well, it has excellent compressive-strength
properties and a relatively low density compared to other
cement-type products.

The gypsum board production process commences with the mining
and transportation of gypsum rock to the board plant where it is
crushed and ground to a fine powder. The gypsum powder is then
heated, driving off three quarters of the chemically combined water
in a process called calcining. The calcined gypsum powder (plaster
of Paris) is then used to produce the core of the board. The board
is formed by introducing a slurry of calcined gypsum (stucco),
along with water, foam, pulp, starch and set controlling agents,
between two unwinding rolls of absorbent paper, resulting in a
continuous “sandwich” of wet board resting on a continuous belt
line. As the board moves down the belt line, the calcined gypsum
rehydrates and recrystallizes, reverting to a solid gypsum matrix,
and the paper sheets become firmly bonded to the rehydrated core.
After moving down the belt line, the continuous board is cut to
length and conveyed through dryers to remove excess moisture. The
board is then conveyed to the “take-off” where it is bundled,
stacked and moved to storage.

There are plants in Canada and the United States which use
synthetic gypsum (DSG) [7] instead of natural ground gypsum. There has been a
growing tendency by both Canadian and US gypsum producers whose
plants are situated in the eastern parts of both countries to use
DSG as a lower-cost raw material alternative to gypsum rock. From
the evidence, it appears that several greenfield plants recently
announced for the eastern United States will use DSG as their raw
material. This material is produced by coal-fired thermal electric
plants located exclusively in the eastern parts of Canada and the
United States. Producers in the western parts of Canada and the
United States do not have economical access to DSG and, therefore,
most firms access gypsum rock from nearby gypsum mines.

Gypsum board is generally produced in standard 4-ft. widths, or
the metric equivalent, and in varying lengths. The most common
length is 8 ft. Gypsum board is manufactured in different
thicknesses ranging from 1/4 in. to 1 in., although 1/2-in. gypsum
board is, by far, the most common. Gypsum board of thicknesses
greater than 1/2 in. is usually used in applications where there
may be high traffic, where sound absorbency is significant or where
fire regulations require a greater thickness. In addition, gypsum
board may be produced with squared, bevelled or tapered edges.

The most common gypsum board is 1/2-in. standard tapered-edge
gypsum board, followed by 5/8-in. fire-resistant gypsum board,
which is used almost exclusively in commercial applications.

Other wall or ceiling construction materials, such as wood
panels and plaster, are alternatives for gypsum board. However,
these products are more expensive and less fire-resistant and,
therefore, do not generally compete with gypsum board.

Historically, gypsum board has been produced and sold within
specific regional markets because of high unit weight and high
transportation costs relative to the unit value of the product.
Friability [8] during
transport has also been a limiting factor. In the past, these
circumstances have generally dictated that markets be supplied by
the nearest producer. However, since the onset of deregulation in
the trucking industry, in the mid-1980s, freight rates declined,
bringing distant markets within reach. Improved rail transport
technology has also increased shipping distances.

A number of Canadian and US producers have been moving toward
obtaining plant access to rail lines and securing contracts with
railways to reduce costs on long distance shipments. This allows
for lower transportation costs when Canadian and US producers ship
product to a given Canadian or US regional market or to a series of
regional markets. Rail is used for long distance shipments, while
trucking is the mode of transport for shorter distances, including
just-in-time deliveries.

There are two basic channels of distribution in Canada. The
first channel is the gypsum supply specialty dealer, which in turn
supplies commercial and residential contractors. The second major
channel of distribution is the building materials retailers that
retain moderate levels of gypsum board inventory in order to supply
the retail market (do-it-yourselfers and small contractors).

In addition to these two major channels of distribution, a small
amount of gypsum board is supplied directly to original equipment
manufacturer (OEM) accounts. These OEM accounts are primarily
manufacturers of pre-fabricated homes.

In Canada, there has been considerable consolidation of
purchasers by membership in buying groups. These buying groups may
include both supply specialty dealers and retailers.

Gypsum board is promoted in a number of ways. It can be marketed
through field sales representatives who have direct contact with
the trade, through print ads in trade publications, through direct
mail promotions and through joint events with customers.

Westroc, formerly known as Westroc Industries Limited, is
indirectly a wholly owned subsidiary of BPB plc in the United
Kingdom and is the largest producer of gypsum board in Canada.

Westroc operates six gypsum board plants and two gypsum mines
across Canada. The plants are located in McAdam, New Brunswick;
Ville Sainte-Catherine, Quebec; Mississauga, Ontario; Winnipeg,
Manitoba; Calgary, Alberta; and New Westminster, British Columbia.
Westroc’s gypsum mines are located in Amaranth, Manitoba (quarry),
and Windermere, British Columbia (quarry). Westroc’s Mississauga
board plant switched from natural gypsum rock to DSG in 1995. The
DSG is supplied by Ontario Hydro’s Lambton Generating Station.

Westroc also markets its gypsum board in the United States.
Export sales increased sharply over the review period and, by 1996,
they accounted for a significant proportion of total sales of
gypsum board.

CGC, the second largest Canadian producer of gypsum board, is
located in Mississauga. It is the largest supplier of gypsum board
in Eastern Canada. The firm is owned by USG which has its head
office in Chicago, Illinois. CGC is divided into three business
divisions: Canadian Gypsum Company, Limited, CGC Interiors and CGC
Industries. In addition, CGC owns Economy Drywall Supplies.
Canadian Gypsum Company, Limited accounts for a large proportion of
CGC’s total sales.

CGC markets gypsum board primarily in Eastern Canada, with
recently increased efforts to sell gypsum board to markets in
Western Canada. This increase in sales to the west follows the
introduction of a new facility for rail car loading installed in
Hagersville, Ontario. CGC operates two gypsum board plants: one in
Montréal, Quebec, which produces gypsum board and joint treatment,
and the other in Hagersville, which produces gypsum board, joint
treatment and textures. The Hagersville plant is located at the
site of its gypsum mine. The Montréal plant obtains its gypsum from
CGC’s new DSG processing plant in Belledune, New Brunswick, which
was opened in November 1995. This facility processes DSG supplied
by the Dalhousie and Belledune power generating facilities of New
Brunswick Power Corporation.

Over the review period, CGC exported increasing volumes of
gypsum board to the United States. In 1996, exports represented an
important part of total sales of gypsum board.

GP Canada is the third largest producer of gypsum board in
Canada. GP Canada is a subsidiary of GPC. GPC is a leading US
manufacturer and distributor of a wide variety of paper and
building products, including a full line of gypsum board products,
joint system products and a variety of specialty gypsum products.
In the spring of 1996, GPC acquired all of the gypsum manufacturing
operations of Domtar Inc. (Domtar). Domtar was one of the original
complainants in the Department of National Revenue’s 1992 dumping
investigation.

GPC owns and operates all of the former Domtar gypsum board
production facilities in Canada, located in Caledonia, Ontario;
Winnipeg, Manitoba; Edmonton, Alberta; and Surrey, British
Columbia. GPC continues to own and operate several gypsum board
production facilities in the United States through its subsidiary
G-P Gypsum, Inc.

GP Canada shipped increasing quantities of gypsum board to the
United States during the review period.

Atlantic, the fourth and smallest Canadian manufacturer of
gypsum board, came out of receivership in February 1993 after
having closed in June 1992. It currently operates one plant in
Corner Brook, Newfoundland, and one quarry in Fischell’s,
Newfoundland. The firm markets its gypsum board in Newfoundland and
the Maritimes.

All Canadian and US producers of gypsum board are members of the
Gypsum Association located in Washington, D.C. This association
provides shipment, capacity and export data for its Canadian and US
members. The Gypsum Association responded to the Tribunal’s
questionnaire.

Questionnaire responses were received from 5 of the 11 US
producers of gypsum board to whom a review questionnaire was sent.
Summary profiles of the US companies for which the Tribunal has
information follow.

USG is the world’s largest producer of gypsum board. Its
headquarters is located in Chicago. This firm operates two core
businesses: (1) North American Gypsum, which includes United States
Gypsum Company, CGC Inc. and Yeso Panamericano, S.A.; and (2)
Worldwide Ceilings. USG’s distribution arm, L & W Supply
Corporation, serves both core businesses and outside customers.

USG currently operates 22 plants in the United States. It
extracts gypsum from its 11 mines and quarries located in the
United States and Canada. USG is also the largest user of DSG in
North America. The company operates four paper mills. These mills
are located in Texas, Ohio, Florida and New York.

National Gypsum Company (National) is the second largest
producer of gypsum products in the United States. This privately
held company, which was incorporated in 1993, is headquartered in
Charlotte, North Carolina. Delcor Inc. holds the major proportion
of the common stock of National.

National currently has 18 plants across the United States that
produce gypsum board. This firm is an integrated manufacturer and
supplier of a variety of other gypsum products, including
pre-decorated and mobile home board, plaster, joint compound, paper
and metal products for the residential and commercial construction
and remodelling markets.

The company operates eight mines and quarries, including the
world’s largest gypsum quarry in Nova Scotia. Approximately 2
percent of the company’s raw material source is DSG which is
obtained from utility companies that use high-sulphur fuels.

National sources its paper requirements for gypsum board from
three company-owned mills, as well as from outside sources.

GPC is a publicly held US corporation and is the third largest
producer of gypsum products in the United States. It is the second
largest producer of gypsum products in North America. Through its
subsidiaries, GPC manufactures and distributes a wide variety of
paper and building products, including a full line of gypsum board
products, joint system products and a variety of specialty gypsum
products. Gypsum products represented a small proportion of
corporate sales in 1996.

GPC entered the gypsum business in 1965 with its acquisition of
Bestwall Gypsum Company. In 1996, it acquired Domtar’s gypsum
business, including gypsum board plants in both Canada and the
United States.

GPC currently has 17 gypsum board plants across the United
States. All of these plants currently produce gypsum board, with
the exception of one which is idle. GPC has announced that it will
permanently close, dismantle and sell this idle plant in Florence,
Colorado. Of the 17 plants, 9 are the recently acquired Domtar
plants.

GPC sold two gypsum board plants in the third quarter of 1996 to
Lafarge Corporation. The US Department of Justice required GPC to
agree to sell these plants as a condition of its anti-trust
clearance for the acquisition of Domtar’s US gypsum operations.

James Hardie Gypsum, Inc. (James Hardie) is the fourth largest
producer of gypsum board in the United States. This firm is owned
by James Hardie (USA), Inc. which, in turn, is part of James Hardie
Industries Limited, a multi-billion dollar, international company
with its head office in Sydney, Australia. James Hardie (USA), Inc.
has two business units: (1) Building Products which makes and sells
fibre cement products; and (2) the Gypsum unit which produces a
full line of gypsum wallboard in thicknesses from 1/4 in. to 1
in.

James Hardie currently has three plants in the United States
that produce gypsum board. These plants are located in Seattle,
Washington; Las Vegas, Nevada; and Nashville, Arkansas. James
Hardie purchased its third gypsum board plant, the Arkansas plant,
on January 31, 1997, in order to provide growth to its overall
gypsum business and to provide the company with a national US
exposure by enabling it to serve the New England, Middle Atlantic,
East North Central, West North Central, South Atlantic, East South
Central and West South Central markets.

Lafarge Gypsum, A Division of Lafarge Corporation (Lafarge
Gypsum), located in Reston, Virginia, is a partly owned subsidiary
of Lafarge S.A., Paris, France. On September 16, 1996, Lafarge
Gypsum entered the North American gypsum wallboard market by
purchasing two gypsum board plants from GPC. This acquisition
established market positions in the northeast and mid-Atlantic
regions of the United States. The plants are located in Buchanan,
New York, and Wilmington, Delaware. Lafarge Gypsum uses contracted
trucks to transport finished gypsum board. Additionally, the
Wilmington plant is fully equipped to ship by rail. Lafarge Gypsum
manufacturers and sells a full line of gypsum board products,
including moisture-resistant and fire-rated wallboard in a variety
of dimensions.

On January 20, 1993, the Tribunal found that the dumping of
gypsum board, with certain exclusions, originating in or exported
from the United States had caused, was causing and was likely to
cause material injury to the production in Canada of like
goods.

The three domestic producers, CGC, Westroc and Domtar,
collectively represented approximately 98 percent of the gypsum
board produced in Canada.

The Tribunal noted that gypsum board had the characteristics of
a commodity product and that suppliers that failed to lower their
prices ran the risk of losing their share of the market. The
evidence showed that the domestic producers had chosen to match the
US import prices and, in so doing, had experienced a progressively
deteriorating financial performance. Gross margins decreased by 76
percent, and combined net income declined steadily to a loss of
$5.5 million during the first eight months of 1992.

The Tribunal noted that there were various factors other than
dumping which contributed to the domestic industry’s injury.
However, these other factors, whether taken individually or
collectively, fell far short of explaining the extent of the
decline in Canadian prices for gypsum board over the inquiry
period. The average margin of dumping of 28 percent was considered
by the Tribunal to be a large margin for price undercutting in a
commodity market such as gypsum board. In the Tribunal’s view, it
was highly probable that the dumping had caused prices to decline
by over 10 percentage points, which translated to industry annual
losses of tens of millions of dollars. Accordingly, the Tribunal
concluded that the dumping of gypsum board had caused and was
causing material injury to the production of like goods in
Canada.

The Tribunal also concluded that all the conditions which gave
rise to the US dumping, including weak demand and substantial
overcapacity, were likely to persist and, therefore, found that the
dumping of gypsum board was likely to cause material injury to the
production of like goods in Canada.

Three of the four domestic producers, Westroc, GP Canada and
Atlantic, are in favour of a continuation of the Tribunal’s 1993
finding. They submitted that the dumping of US-manufactured gypsum
board is likely to resume, should the anti-dumping measures in
place be discontinued, and that the Canadian gypsum board industry
is extremely vulnerable to material injury as a result of such
dumping.

Parties in favour of a continuation of the finding argued that
the North American gypsum board market is in virtually the same
position as it was in 1987-88, i.e. at the beginning of a downturn
of the US gypsum board industry’s business cycle and the coming on
stream of substantial US production capacity at the same time as
the Canadian industry is experiencing a business cycle upturn.

Westroc and GP Canada noted that, although US construction
activity has been expanding since 1993, the forecast for the coming
years is for a softening or, at best, a stabilization in the
economy in general and construction activity in particular. Since
the demand for gypsum board is derived from construction activity,
Westroc and GP Canada argued that these forecasts make it clear
that the US gypsum board industry can expect to experience
declining demand, production and capacity utilization rates from
1997 to 2000. They claimed that the forecasts indicate that the
conditions which helped the US gypsum board industry reach the
levels that it attained in 1995 through 1997 are about to change,
paving the way for a reduction in shipments and capacity
utilization for US producers. It was submitted that this slowdown
in demand has already occurred in the south central and midwest
regions.

Much evidence was presented with respect to the announced
capacity expansion plans by US producers of gypsum board. Westroc
and GP Canada argued that, as the experience of the 1980s and 1990s
has shown, the US market has had a history of capacity additions
decided at a time when the market was growing and coming on stream
at the end of an upward cycle.

Parties in favour of a continuation of the finding introduced
evidence that US producers of gypsum board plan to expand their
production capacity by approximately 4.5 to 5.0 BSF [9] between 1997 and 2000. It was
noted that this increase in production capacity is almost double
the total annual capacity reported by the Canadian gypsum board
producers in 1996. GP Canada related this significant volume of new
capacity to the Tribunal’s 1993 statement of reasons when it found
that “the real importance of the U.S. sales lies not in the
measurement of volumes sold, but in their effect on domestic prices
[10] ” and that a
small volume of dumped gypsum board can have a dramatic affect on
the performance of the domestic industry.

Parties in support of a continuation of the finding argued that,
with the scheduled increase in capacity by US producers, there will
be a significant decline in capacity utilization in a
capital-intensive industry which requires high levels of capacity
utilization to remain profitable. Gypsum board manufacturers have
financial and operational incentives to run plants at full
capacity. Westroc and GP Canada also noted that capacity
utilization is particularly important for the independent and
regional producers.

Based on the somewhat pessimistic forecasts for demand of gypsum
board in the US market from 1998 to 2000, counsel for parties in
favour of a continuation of the finding argued that the announced
US capacity additions will cause major disruptions in the US
market. Counsel submitted that capacity utilization rates will drop
below the 90 percent level and that the historical evidence shows
that reduced prices follow reduced capacity utilization.

Counsel for parties in favour of a continuation of the finding
also stated that other factors suggest that there is a likelihood
of renewed dumping by US producers. These factors include the level
of debt among US producers, freight equalization or sales of gypsum
board outside “logical” freight zones, and the value of export
sales.

GP Canada noted that there are still substantial debt service
obligations by a number of US producers. Also, additional debt may
reasonably be expected to be taken on to finance the aggressive
capacity expansion being undertaken by manufacturers such as USG,
National, James Hardie, Republic Gypsum Company and Temple-Inland
Forest Products Corporation. It was argued that this debt will
provide substantial incentive to maintain high capacity utilization
rates by maintaining or increasing sales volume.

In addition, testimony was presented by Westroc and GP Canada
which addressed the continued presence of gypsum board in US
regions, well outside of the logical freight zone of the producers’
manufacturing facilities, which is sold at prices below the net
return earned on the bulk of sales from the same facilities. After
taking into account freight costs to regions where US firms are
non-resident manufacturers of gypsum board, it was suggested that
these US producers often sell to distant markets at prices that are
lower than those to their local markets. Westroc and GP Canada
argued that this shows a high propensity by US manufacturers to
seek alternative markets (including export markets such as Canada)
at lower prices and that, in doing so, prices in the destination
markets inevitably decline, thereby causing injury to local
producers. Therefore, in order to maintain utilization levels, US
producers of gypsum board ship product to distant markets. The
increasing use of rail allows for access to even more distant
markets where product is either warehoused or sent to reload
centres.

Westroc and GP Canada submitted that, since 1993, US producers
have maintained their exports to offshore markets much further away
than Canada despite significant freight costs. They argued that the
evidence indicated that certain US producers’ exports to third
country markets earn, in some cases, significantly lower net
returns than those earned by sales in the US market during 1995-97.
Westroc and GP Canada submitted that such export activity reflects
the natural tendencies of US gypsum producers to dump product.

In support of the argument that there is a likelihood of resumed
dumping in Canada by US producers, parties in favour of a
continuation of the finding argued that the forecast for the
decline in demand combined with the significant volume of new
capacity expected to come on stream promise a strong likelihood of
an early and a lasting decline in US capacity utilization rates.
This will lead to a downward pressure on gypsum board prices in the
United States and to a propensity for US exporters to resume
shipping gypsum board to Canada at dumped prices.

Turning to arguments regarding the likelihood of material
injury, Westroc and GP Canada argued that, in the absence of
dumping from the United States, the projected improvements in the
Canadian market should have positive effects on Canadian producers’
production, capacity utilization, domestic sales and, perhaps,
price levels. They believe that, should the dumping of gypsum board
in Canada resume, the Canadian gypsum board industry will suffer
the same types of material injury found by the Tribunal from 1990
to 1992, but with more devastating consequences, given the
vulnerable state of the Canadian gypsum board industry following
its muted performance between 1993 and 1995.

Westroc and GP Canada submitted that the anticipated softening
of US demand together with a decrease in capacity utilization rates
will have a twofold impact on the domestic industry. First, it will
cause US producers to seek out new business in Canada by
undercutting Canadian selling prices. This will prevent Canadian
producers from reaping the necessary benefits of the long awaited
recovery in the domestic market.

Second, and more importantly, counsel for parties in favour of a
continuation of the finding argued that the projected downturn in
demand in the United States will have a negative impact on the
domestic industry’s export sales. This will result in reduced
exports by the domestic industry to the United States. Export sales
to the United States have been a major contributor to the
improvement in the health of the Canadian gypsum board industry
between 1993 and 1996. This loss of business will make Canadian
producers more vulnerable to resumed dumping. It will also result
in significantly lower capacity utilization and higher unit costs.
But for the substantial export sales between 1993 and 1997, the
capacity utilization rates for Canadian producers would have been
unacceptably low.

Parties in favour of a continuation of the finding argued that,
in the Tribunal’s 1993 statement of reasons, a single percentage
drop in the price of gypsum board cost the Canadian industry
millions of dollars in annual revenues and that a 10 percent
decline in gypsum board prices caused material injury. It was
submitted that a 10 percent decline in pricing would still be
materially injurious as, in today’s circumstances, such a 10
percent decline in pricing would take the industry very close to a
break-even point. It was further submitted that a price decrease of
less than 10 percent would also be materially injurious.

A witness for Westroc attempted to put the vulnerability
question into perspective. He noted that a price decline of only 10
percent would essentially wipe out the profits of the gypsum board
industry. This would occur at a time when domestic producers are
looking at a modest upturn in the demand for gypsum board in
Canada, something that has not been seen for about a decade. The
witness for Westroc argued that this necessary improvement in sales
and profitability is in jeopardy from the likelihood of resumed
dumping. It was further argued that, with gypsum board being a
commodity product, the entry of US gypsum board into the Canadian
market will come from undercutting the price, which will cause
price declines in Canada at a time when domestic producers are
extremely vulnerable.

In addition, it was argued by parties in favour of a
continuation of the finding that the consolidation of buying power
in Canada and the emergence of “big-box” retailers, such as The
Home Depot Canada, as substantial purchasers of gypsum board
increase the vulnerability of the domestic industry. They further
argued that these buyers will not hesitate to seek out US-produced
gypsum board if their prices are below those of the domestic
producers.

In summary, parties in favour of a continuation of the finding
argued that the historical evidence on the record will tell us what
will occur. Specifically, when the US industry or individual
manufacturers had excess production capacity, US-manufactured
gypsum board was shipped to the Canadian market at lower net
returns than earned on sales closer to the US production
facilities.

CGC, the second largest domestic producer of gypsum board, along
with James Hardie and National, two US gypsum board producers,
argued in favour of a rescission of the finding. It was submitted
that circumstances that were present in the Canadian and US gypsum
board markets from 1990 to 1992 will not occur again. First, they
contended that the events which led up to the 1993 finding followed
a consistent drop in US housing starts and US demand for gypsum
board over a period of six years starting in 1986 up to and
including 1991 and a consistent drop in Canadian housing starts and
Canadian demand for a period of four years starting in 1987 up to
and including 1991.

Second, these parties noted that the finding was made at a time
when both the US and Canadian economies were just beginning to
recover from a deep recession, with US producers realizing national
average selling prices of less than US$70/MSF [11] in 1992 compared to more than
US$120/MSF at the peak in 1986. Currently, USG’s national average
price for gypsum board is over US$120/MSF.

Third, Canadian exports of gypsum board to the United States,
which peaked at 800 MMSF [12] in 1986, had precipitously dropped to 93 MMSF by
1991. Currently, the Canadian producers export gypsum board to the
United States in record volumes, suggesting that, before dumping of
US gypsum board in Canada could occur, Canadian exports would have
to cease. It was submitted that this is not expected to occur in
the next two years.

It was further submitted that there have been significant
changes in the gypsum board industry since the Tribunal’s 1993
finding. Reference was made to the substantial ongoing growth in
the US economy, the strong performance in both residential and
commercial building starts and the remodelling sector in the United
States. These factors have resulted in a significant growth in the
US gypsum board market since 1993.

Currently, the US gypsum board industry is operating at 95
percent capacity, and some US producers have their customers on
allocation. US selling prices of gypsum board are at historically
high levels and are higher than they are in Canada. Because of this
and the strong demand in the US market, parties in favour of a
rescission of the finding argued that US producers are not
interested in selling gypsum board in the Canadian market.

From a structural and financial perspective, the US industry has
extensively restructured and is now operating profitably. CGC,
James Hardie and National argued that the marginal, single-line
manufacturers are not a big factor in the industry and, as a
result, that the consequences of decisions driven by “cash flow”
and “capacity utilization” are no longer a concern. At the time of
the finding, the Tribunal put considerable weight on the heavy
indebtedness of US producers and the regional imbalance between
supply and demand. It was submitted that neither of these
conditions exists today.

Parties in favour of a rescission of the finding argued that
recent buoyant conditions in the US gypsum board market
characterized by high utilization rates of the US industry and US
price levels are positive indicators which are expected to
continue, at least in the short term.

CGC, James Hardie and National stated that US research studies
indicate that US prices are expected to continue to increase at a
modest rate. These forecasts show that the US producers’ capacity
utilization rates are expected to remain high despite the
announcements of significant increases in US gypsum board
capacity.

The continuing strength in demand is likely to result in only a
modest backing off from the premium pricing that has been realized
while the industry has been operating at near its capacity limit.
It was suggested by parties in favour of a rescission of the
finding that the industry can maintain prices as long as
utilization rates remain above 90 percent. Moreover, as there is no
foreseen “meltdown” of the economy, there should be no precipitous
decline in utilization rates for the US industry. [13]

With respect to pricing into export markets, National submitted
that these sales represent less than 1 percent of total US
shipments. In addition, there have been no indications that US
gypsum board producers have been aggressively maintaining their
presence in other export markets since 1993. Furthermore, National
argued that comparing gross domestic and export selling prices can
be most misleading. These sales are made ex-mill or ex-dock, in
which case no transportation, handling or reload costs are incurred
by National. Since National expends little or no effort in
soliciting such orders, there are much lower selling and general
overhead expenses associated with such transactions.

In response to the claim that US producers continue to sell into
regions well outside the logical freight zone of the producers’
manufacturing facilities, National submitted that it adjusts the
price of gypsum board to the prevailing price in the region being
served. It argued that this is something that any responsible
supplier does as a matter of course. It was submitted that, in the
majority of instances, the price invoiced is higher than that
invoiced in the home market.

Parties in favour of a rescission of the finding claimed that
the most recent forecasts are optimistic, suggesting the
diminishing likelihood of a recession in the United States and the
expectation of vigorous housing activity and continued earnings
gains. In addition, forecasters are raising their estimates for
1998 because of the stronger than expected demand for gypsum board
in the third quarter of 1997, due to the continuing robust
performance of housing and commercial construction sectors. Price
estimates for 1998 have also been revised upward.

With respect to the announced capacity increases, parties in
favour of a rescission of the finding submitted that these
announcements must be put in perspective. In this regard, the net
increase in capacity from 1992 to 1997 amounted to 9.6 percent,
which was well below the 35.7 percent growth rate in the US market
over this same period. It was also submitted that capacity
additions submitted by GP Canada and Westroc do not include
closures, which are rarely announced. As a consequence, these
figures could overstate actual capacity additions by an important
margin.

James Hardie and National noted that manufacturers’ decisions as
to where to locate new plants are heavily influenced by analyses of
underserved market areas where there is a good potential for market
share growth. They argued that this fact also limits the potential
for new capacity to move to Canada. In addition, because of complex
licensing and approval processes, as well as the degree of risk
associated with an announced start-up date, certain investment
decisions can be and often are deferred.

It was argued that the data reported by the Gypsum Association
are not reported on a consistent basis. Shipment data, as the term
implies, are for actual product shipped. They are, therefore, a
mixed range of products representing both standard and specialty
wallboard of differing sizes. Capacity, on the other hand, is a
somewhat theoretical figure, as it represents potential output if
only 1/2-in. standard board is being produced. As a result, parties
in favour of a rescission of the finding argued that the capacity
data overstate practical production capability.

Parties in favour of a rescission of the finding noted that
various US producers use a factor to “mix adjust” the capacity
figures issued by the Gypsum Association. While this adjustment
factor does not alter the general trend line conclusions relating
to capacity utilization, it does alter the percentage utilization
rates and substantially reduces capacity additions announced by the
US industry, as well as excess capacity forecasts when expressed in
MSF.

In light of these developments, these parties submit that US
producers will continue to supply the increasing US demand for
gypsum board and do not consider the Canadian market to be a factor
in their future plans. Finally, as a consequence of the present
level of the Canadian dollar, the US industry prefers to service
its US customers at superior returns to those which would be
achieved on sales to Canada.

As part of their argument in this proceeding, counsel for
Westroc addressed the application of the “clearly foreseen and
imminent” standard in the context of a review under section 76 of
SIMA.

Counsel for Westroc noted that the “clearly foreseen and
imminent” standard is set out in Article 3 of the Agreement on
Implementation of Article VI of the General Agreement on Tariffs
and Trade 1994[14] (the Agreement), which governs determinations of
injury and threat of injury, whereas it is not contained in Article
11 of the Agreement, which governs review proceedings. Counsel
submitted that the test for the continuation of a finding is set
out in Article 11.3 of the Agreement, which provides that
anti-dumping duties are to be terminated not later than five years
after being imposed, unless it is determined that the expiry of the
duty “would be likely to lead to continuation or recurrence of
dumping and injury.” Counsel argued that the Tribunal should not
apply the “clearly foreseen and imminent” standard in this
review.

With respect to this issue, counsel for CGC referred the
Tribunal to its statement of reasons in Review No. RR-89-009.
[15] In that case,
the Tribunal found that there were similarities between the
questions that it must examine in considering whether a threat of
injury exists and those that it must consider in a review. The
Tribunal found that paragraph 6 of Article 3 of the GATT
Anti-dumping Code, [16] which then contained the “clearly foreseen and
imminent” standard, to be “instructive in interpreting the concept
of threat of injury. [17] ” Counsel argued that the Tribunal should apply
that standard in this review.

Article 3 of the Agreement is entitled “Determination of
Injury.” Article 3.7, which relates to threat of injury, provides,
in part, that “[t]he change in circumstances which would create a
situation in which the dumping would cause injury must be clearly
foreseen and imminent.”

At the time that the Agreement was implemented into Canadian
law, subsection 2(1.5) was added to SIMA. It provides as
follows:

For the purposes of this Act, the dumping or subsidizing of
goods shall not be found to be threatening to cause injury or to
cause a threat of injury unless the circumstances in which the
dumping or subsidizing of goods would cause injury are clearly
foreseen and imminent.

While counsel focused their arguments regarding this issue on
certain provisions of the Agreement, the Tribunal is of the view
that subsection 2(1.5) of SIMA makes it clear that the Tribunal is
required to apply the “clearly foreseen and imminent” standard only
in considering the question of threat of injury in an inquiry under
section 42. In this regard, the Tribunal notes that SIMA contains
no parallel provision to subsection 2(1.5) with respect to reviews
under section 76.

The Tribunal’s view is consistent with the structure of the
Agreement. In the Agreement, pursuant to Article 3.7, the “clearly
foreseen and imminent” standard applies only to the threat of
injury question. Moreover, Article 11 of the Agreement sets out a
different standard with respect to the review and continuation of
findings and orders. Article 11.1 provides that anti-dumping duties
are to “remain in force only as long as and to the extent necessary
to counteract dumping which is causing injury.” In addition, as
noted by counsel for Westroc, Article 11.3 provides that
anti-dumping duties are to be terminated not later than five years
after being imposed, unless it is determined in a review that “the
expiry of the duty would be likely to lead to continuation or
recurrence of dumping and injury.”

Notwithstanding the foregoing, the Tribunal notes that, as a
practical matter, due to the tendency of economic forecasts to
decline in terms of reliability as one goes further out into the
future, in reviews, the Tribunal has tended to rely more heavily or
place greater weight on evidence concerning what is likely to
happen in the market in the near or medium term, rather than what
may happen over the long term. For example, in Review No.
RR-90-001, [18] the
Tribunal stated:

It is impossible for the Tribunal and suppliers to anticipate,
with any degree of certainty, what is likely to occur in the market
for tubing in the medium or long term. Market and technological
conditions could change, leading to major increases or sharp
declines in potential demand. [19]

Indeed, as is discussed below, in this review, the Tribunal has
attached more weight to the forecasts to the end of 1999, rather
than to the forecasts for the year 2000 and beyond.

Section 76 of SIMA provides that, on completion of a review, the
Tribunal shall rescind or continue an order or finding, with or
without amendment. In making its decision in this matter, the
Tribunal deals with two fundamental questions. It first determines
whether there is a likelihood of resumed dumping, if the finding is
rescinded. If the Tribunal finds that there is a likelihood of
resumed dumping, it then determines whether such dumping is likely
to cause material injury to the domestic industry. Before
considering these two fundamental questions, the Tribunal
considered the change in market conditions in the gypsum board
industries in Canada and the United States, since the period
leading up to the original finding. The Tribunal considered this
exercise to be useful, as parties supporting a continuation of the
finding argued that the conditions present in the market today
closely resemble those which existed prior to the Tribunal’s
finding in 1993, whereas parties in favour of a rescission of the
finding took the opposite view.

In considering the extent to which circumstances may have
changed in the market since the original finding, the Tribunal
examined the extensive evidence before it on the Canadian and US
gypsum board industries. The Tribunal began its analysis by
considering the factors which led to the dumping of gypsum board
prior to its 1993 finding. It then considered whether these factors
continue to exist today.

Canada

When the Tribunal made its finding in 1993, the Canadian economy
was slowly recovering from the recession. This recession was more
severe in Canada than it was in the United States. It also lasted
longer in Canada, especially with respect to the housing sector
which remained weak well after the end of the overall recession.
This weakness had a negative impact on demand for gypsum board. The
recession was also more severe in Eastern Canada than in Western
Canada, where it occurred later and was milder than in the rest of
Canada.

The severity of the recession in Canada had a direct and
negative impact on gypsum board demand and on the domestic gypsum
board industry’s performance. The Canadian gypsum board market
declined by 18 percent between 1989 and 1991. In 1991, the domestic
industry operated at 57 percent of total capacity, down from 86
percent in 1989. Average selling prices for gypsum board declined
by 20 percent between 1990 and September 1992. Exports to the
United States plunged by 76 percent and represented just 4 percent
of total sales of gypsum board, down from 13 percent in 1989. The
domestic industry’s net income dropped from $58.0 million in 1989
to less than $1.0 million in 1991. For the first eight months of
1992, the industry reported losses of $5.5 million.

Since the Tribunal’s finding, there has been moderate but
continuing growth in the Canadian economy. However, housing starts
have lagged overall economic growth by a wide margin. They fell
from 168,000 units in 1992 to 111,000 units in 1995, which was a
30-year low. While housing starts increased to 125,000 units in
1996, they remained well below the levels recorded during 1992-94.
As a consequence of this poor performance, the domestic gypsum
board market declined by 17 percent between 1992 and 1996.

While the domestic gypsum board market was not strong during the
past five years, the domestic industry performed quite well. The
domestic industry’s profitability showed marked improvement over
this period, with gross margin reaching 28 percent in 1996, up from
8 percent recorded in 1992. Over the same period, net income
reached almost $39.0 million compared to a loss of $5.5 million.
The domestic industry operated at 86 percent of capacity in 1996, a
significant improvement over the 64 percent utilization rate in
1992. These positive results were largely due to the domestic
industry’s ability to ship increasing volumes of gypsum board to
the United States. Exports to the United States reached 835 MMSF in
1996, up from 126 MMSF in 1992, a 563 percent increase. In 1996,
export sales accounted for 28 percent of total sales of gypsum,
compared to just 5 percent in 1992.

Table 1 provides a review of the consolidated domestic
industry’s income statement for gypsum board in this case. It
reveals the level of success achieved by the industry since the
issuance of the finding in early 1993. The clearest manifestation
of that success is the financial performance of the domestic
industry over the period of review, which improved as a result of a
strong export performance and increasing price levels for gypsum
board in Canada.

TABLE 1

CONSOLIDATED DOMESTIC INDUSTRY’SINCOME STATEMENT FOR GYPSUM BOARD

($000)

January to June

1992

1993

1994

1995

1996

1996

1997

Net Sales

260,410

285,163

331,722

298,386

309,272

140,161

155,686

Cost of Goods Sold

236,121

238,508

261,205

240,121

223,768

104,860

115,893

Gross Margin

24,289

46,655

70,517

58,265

85,504

35,301

39,793

(Percent Share)

January to June

1992

1993

1994

1995

1996

1996

1997

Net Sales

100

100

100

100

100

100

100

Cost of Goods Sold

91

84

79

80

72

75

74

Gross Margin

9

16

21

20

28

25

26

Notes:
1. GP Canada could not separate export expenses from total gypsum
expenses; therefore, they are included.

2. Fiscal year ends December 31 for CGC and GP Canada. Fiscal
year ends March 31 for Westroc. Westroc’s fiscal 1993 (April 1992
to March 1993) has been added to CGC and GP Canada’s calendar year
1992.

The domestic gypsum board industry has undergone both major
structural and organizational changes since 1992. In 1996, GPC
purchased the Canadian gypsum board assets of Domtar. Westroc took
on new capacity by purchasing Nova Gypsum in MacAdam and reopened
the plant which had ceased operations in 1991. USG, which had
previously owned 67 percent of the outstanding shares of CGC,
purchased all of the remaining outstanding shares. Atlantic, the
smallest domestic producer, came out of receivership in February
1993 after having closed in June 1992.

United States

The recession of the late 1980s and early 1990s in the United
States, coupled with the financial crisis of savings and loans
institutions in the United States, led to a drop of 12 percent in
gypsum board demand between 1989 and 1991. The US gypsum board
industry’s capacity utilization rate fell from 87 percent to 75
percent, while selling prices declined from US$85/MSF to US$70/MSF,
a drop of 18 percent.

During this period, US producers representing 60 percent of the
production capacity of the US gypsum board industry were in chapter
11 bankruptcy proceedings. USG, the largest US producer of gypsum
board, and National, the second largest producer, emerged from
chapter 11 bankruptcy proceedings in 1993. The Celotex Corporation,
a third US producer, emerged from bankruptcy protection in
1996.

The shadow of increasing debt service obligations and related
credit restrictions combined to make cash flow an imperative for US
producers of gypsum board. Under these circumstances, these
producers sold gypsum board to cover their cash obligations, even
though prices were unprofitably low. [20]

During this same period, it is noteworthy to mention that
one-line plant operations operated at full capacity despite the
major downturn in the US economy and contributed to the excess
supply of gypsum board.

These developments spilled over into the Canadian market where
sales of US product were made through direct sales by US producers,
sales agents and commodity brokers. At that time, US suppliers
bypassed Canadian buying groups, which accounted for a substantial
proportion of domestic sales, and sold directly to members of the
buying groups themselves.

US broker involvement in the Canadian market was a new
development and was particularly disruptive. The gypsum board that
US brokers offered came from a wide spectrum of US producers,
including those located in the south central region of the United
States, as well as from the major national producers. They did not
purchase product directly from US producers, but bought gypsum
board in the open market through third parties. As a consequence,
brokers were able to sell gypsum board to Canadian purchasers from
producers such as National that did not ordinarily deal with
brokers.

In its 1993 finding, the Tribunal found that US imports of
gypsum board drove Canadian prices to ever lower levels through the
effects of dumping. The Tribunal noted that the Deputy Minister of
National Revenue had determined that the average margin of dumping
was slightly over 27 percent, which, in the Tribunal’s opinion, was
a huge margin of underpricing in a commodity market where even
small price differences could lead to large shifts in purchases by
customers.

In contrast to 1989-91, there were significant changes during
the past five years in the United States with respect to the
economy, the gypsum board market and the structure of the gypsum
industry. During this period, there was ongoing growth in the US
economy. Strong housing and commercial activity, including growth
in the remodelling and repair sector, had a significant impact on
the gypsum board market as reflected by a 28 percent increase in
demand over this period. Increasing demand led to steady increases
in capacity utilization by the US gypsum industry and, by 1996, the
utilization rate reached 95 percent.

US selling prices for gypsum board increased steadily from their
lows in 1991-92. In 1997, selling prices were about 40 percent
higher than they were in 1992. This rapid price escalation reflects
three price increases which were introduced in 1997. Also, there is
more price stability in the US market. One of the reasons for this
development has been the discontinuation by several producers of
selling gypsum board through brokers.

Turning to financial performance, the US gypsum industry
returned to profitable operations after having suffered significant
losses during 1991-92. Many US producers have taken advantage of
these positive results by reducing their debt significantly since
1992. One major US producer has recently indicated that it intends
to use 50 percent of earnings to reduce debt and the balance for
capital improvements.

Since 1992, the US gypsum board industry has consolidated and
restructured. The number of US producers has been reduced by 2 to
11. One-line plant operations have declined by 50 percent. Some
one-line plant operations, such as Boral Gypsum and Eagle, no
longer own plants (Boral Gypsum was purchased by James Hardie,
while Centex purchased Eagle). Boral Gypsum was one of the dominant
exporters of gypsum board to Canada in the years prior to 1993.

Major ownership changes occurred in the US gypsum board industry
in 1995 and 1996. In 1995, Delcor Inc. purchased National, the
second largest producer of gypsum board in the United States. In
1996, the gypsum board assets of Domtar in the United States were
acquired by GPC. As a result of this purchase, GPC became the third
largest producer of gypsum board in the United States and the
second largest producer in North America. Also, in late 1996,
Lafarge Gypsum entered the US gypsum board business with the
acquisition of two former Domtar plants.

During the past six to seven years, there has been continuous
growth in the US economy. Currently, the US economy is buoyant, and
the demand for gypsum board is strong. Interest rates and inflation
are low, and there are few signs of a recession in the United
States. [21] US
gypsum board selling prices are presently at historically high
levels, as shown in Table 2. The performance of the US gypsum board
industry in the most recent period, the third quarter of 1997, was
stronger than had been generally expected.

Table 2 also shows that the US gypsum board industry operated at
95 percent of capacity during the first half of 1997. Indeed, the
evidence shows that, in some US regions, US producers are operating
at full capacity and have their customers on allocation. Moreover,
the primary source of the dumped gypsum board in 1992, the south
central region of the United States, is now the home to facilities
operating at high levels of capacity with relatively healthy price
levels.

TABLE 2

COMPARATIVE DATA TABLECANADIAN AND US GYPSUM BOARD INDUSTRIES

January to June

1994

1995

1996

1996

1997

Canadian Capacity (MMSF)

3,296

3,390

3,403

1,703

1,781

Canadian Utilization Rate (%)

On Canadian Sales

76

61

62

57

67

On Export Sales

13

18

24

19

25

On Total Sales

89

79

86

76

92

US Capacity (MMSF)

24,640

25,180

25,900

12,950

13,065

US Utilization Rate (%)

94

92

95

93

95

Average Selling Prices ($CAN/MSF)

1/2-in. Standard Gypsum Board

Canada

N/A

133

138

138

131

United States

N/A

143

139

135

157

5/8-in. Type X Gypsum Board

Canada

N/A

162

169

169

164

United States

N/A

162

156

153

173

MMSF = million square feet.

MSF = thousand square feet.

N/A = not available.

Source: Protected Pre-Hearing Staff Report, September 23,
1997, Tribunal Exhibit RR-97-004-6 (protected), Administrative
Record, Vol. 2 at 21.44, 21.80 and 21.89. Canadian utilization
rates on Canadian and export sales estimated are based on sales
data received from Westroc, CGC and GP Canada.

In summary, the US industry has restructured and rationalized
during the past five years. The US market has shown strong growth
and remains buoyant. US selling prices for gypsum board are now
significantly higher than Canadian gypsum board prices, and the US
industry is running at a high rate of capacity and, currently,
there are no exports of gypsum board to Canada. US producers are
finding the US market more attractive than the Canadian market.
This situation is not likely to change soon due to the current high
demand and price levels in the United States. The Tribunal
considers that, on the basis of these developments, the
circumstances in the market today are much different from what they
were at the time of the 1993 finding.

Having reviewed the changed circumstances in the gypsum board
industry in both Canada and the United States and the present
situation in the US industry, the Tribunal now turns to consider
the question of whether there is a likelihood of resumed dumping,
if the finding is rescinded. In this respect, the Tribunal
addresses the main arguments presented during the review
process.

The parties in favour of a continuation of the finding argued
that the dumping that took place in the late 1980s will reoccur in
the late 1990s. Specifically, the US gypsum board industry is at a
point in its business cycle which is very much like that which it
faced in 1987. Westroc and GP Canada believe that the US industry
is at the peak of the business cycle. Demand is about to decrease
over a period when much new capacity is going to be added and, as a
consequence, they expect the price of gypsum board to fall
dramatically as it did in 1987. In light of Canada’s geographic
proximity and the fact that US producers are familiar with the
Canadian market, they are likely to seek opportunities in the
Canadian market.

In order to quantify the relationship between capacity
utilization and the price of gypsum board in the United States,
parties in favour of a continuation of the finding commissioned two
economic experts [22] to develop an econometric model (the Boltuck
Report). Based on a range of assumptions for several external
economic variables, the economists used the model to make
projections of demand, capacity utilization and prices for gypsum
board in the United States to the year 2000.

The forecasts presented generally indicated that increases in
production capacity for the industry will occur faster than
increases in demand for gypsum board over the period from 1998 to
2000. As a result, capacity utilization is expected to decline.
Based on historical performance, Westroc and GP Canada argued that
this declining rate of capacity utilization would lead to a
decrease in the price of gypsum board and renewed dumping.

Parties in favour of a rescission of the finding argued that
circumstances have changed since the original finding. They pointed
to the substantial growth in the US gypsum board market, high
capacity utilization rates of the US industry and a gypsum board
industry which has achieved financial stability. While it was
acknowledged that new capacity was scheduled to come on stream,
they argued that the new capacity would not lead to dumping in
Canada.

CGC commissioned two economic experts [23] to respond to the Boltuck Report.
In general, the authors of the rebuttal report [24] submit that the Boltuck Report
has conceptual and empirical flaws. The principal findings
presented in the rebuttal report are: first, the Boltuck Report is
based on overly pessimistic external forecasts; second, it does not
model capacity changes as a performance-dependent variable; and,
third, it fails to recognize the importance of the differences in
regional economic performance.

The Tribunal is of the view that the basic structure of the
model in the Boltuck Report and the directions of its results on
the price of gypsum board are consistent with the general
indications underlying other evidence presented by parties.
Generally, this evidence indicated that, within certain ranges, a
decline in capacity utilization leads to a decline in the price of
gypsum board and that an increase in capacity utilization leads to
a rise in price. Given the announced intentions for a large
increase in production capacity by US producers, a crucial question
for the Tribunal is the probable impact of demand and other factors
on the magnitude and timing of the increase in capacity. The
economic model was not designed to capture the process by which
gypsum board producers decide when to increase or decrease
capacity, by how much and in what location. To address these
questions, the Tribunal relied upon evidence presented by
representatives from the US and Canadian gypsum board industries,
rather than on the economic model.

In considering whether there is a likelihood of resumed dumping,
the Tribunal first analyzed the forecasts presented for the demand
of gypsum board in the United States. Second, it reviewed the
announced capacity additions that are expected to come on stream.
Third, the Tribunal considered the effects that estimated demand
and capacity additions may have on capacity utilization rates.
Finally, it took into account the potential effects of changing
capacity utilization rates on future prices of gypsum board in the
United States.

The Tribunal had before it numerous forecasts and plans,
prepared by Canadian and US producers of gypsum board, as well as
forecasts prepared by third parties. Table 3 provides a summary of
some of these forecasts for capacity, shipments and capacity
utilization in the US gypsum board industry. These forecasts are
derived from those submitted by parties in favour of a continuation
of the finding and by parties in favour of a rescission of the
finding. In addition, the summary takes into account the forecasts
prepared by third parties such as F.W. Dodge, Morgan Stanley and
Dillon Read.

TABLE 3

US SHIPMENTS, CAPACITY AND UTILIZATION(1992-2000)

1992

1993

1994

1995

1996

Historical

Gypsum Association

Capacity (BSF)

24.11

24.19

24.64

25.18

25.90

Shipments (BSF)

20.18

21.38

23.20

23.07

24.72

Utilization (%)

84

88

94

92

95

Forecasts

1997

1998

1999

2000

Capacity (BSF)

Lowest

26.19

27.14

28.40

29.80

Highest

27.90

29.46

30.60

32.40

Average

27.05

28.30

29.50

31.10

Shipments (BSF)

Lowest

24.94

24.48

24.10

24.30

Highest

25.90

26.57

27.52

27.61

Average

25.42

25.53

25.81

25.955

Utilization (%)

Lowest

91

88

83

79

Highest

97

96

94

91

Average

94.0

92.0

88.5

85.0

Note: The “lowest” and “highest” forecasts shown in the table
represent the lowest and highest forecasts presented by parties in
any given year. They do not represent any one company’s forecast.
The same applies for the lowest and highest values of percent
utilization which represent the lowest and highest values presented
by parties in any given year, rather than being a value computed
from the other values in the table. The “average” forecasts shown
in the table represent the average of eight individual
company-specific forecasts for capacity, shipments and
utilization.

BSF = billion square feet.

Source: The record of Review No. RR-97-004.

Table 3 shows that the average forecast for new capacity
increases by close to 15.0 percent from 1997 to 2000. In addition,
it shows that the average forecast for shipments of gypsum board
increases marginally between 1997 and 2000. [25] The average forecast for capacity
utilization levels falls slightly to 92.0 percent in 1998, before
declining to 88.5 percent in 1999 and 85.0 percent in the year
2000.

The Tribunal is of the view that the demand for gypsum board is
derived mainly from the demand for new housing and commercial
building starts and, to a lesser but growing extent, from the
demand for the remodelling and renovation of existing buildings,
[26] both
residential and commercial. A strong and growing overall economy
will usually be accompanied by a buoyant housing market and growing
demand for gypsum board. A weak and declining economy will normally
be accompanied by a depressed housing market and a decline in the
demand for gypsum board. Thus, the forecast for the economy and
housing construction [27] is crucial for the outlook for the demand for
gypsum board.

Forecasts for the overall economy are prepared by a large number
of organizations. Their forecasts are based on a range of
underlying assumptions and methodologies. These forecasts are
typically revised during the year to take into account new
statistical information which has become available and to reflect
revised assumptions about external factors likely to affect the
forecasts. As well, forecasts are likely to have different
reliabilities in terms of their accuracy in predicting specific
economic or industrial aggregates such as production and prices.
The Tribunal is of the view that it should give more weight to the
average of the forecasts presented. As well, the Tribunal believes
that it should attach more weight to the forecasts to the end of
1999, rather than to the forecasts for the year 2000 and
beyond.

As shown in Table 3, the average of forecasts for shipments of
gypsum board in 1998 and 1999 shows further marginal growth, from
the high level recorded in 1997. This would represent a
continuation of the pattern of growth which has occurred in the
United States in most of the years since 1992. If the slowing of
the general economic growth in the United States were to slip into
a decline in overall activity, then the forecast for shipments of
gypsum board would also likely show a decline, as indicated by the
lowest forecasts for shipments shown in Table 3. The Tribunal notes
that, even if this were to occur, the decline in shipments of
gypsum board in 1999 relative to 1997 would be about 3 percent,
which is significantly smaller than the decline of approximately 12
percent in US shipments over the period from 1989 to 1991. [28]

In this respect, the Tribunal heard testimony from a witness for
both Westroc and GP Canada and a witness for James Hardie that
forecasts for the next 12 to 18 months do not call for a repeat of
the sharp decrease in demand for gypsum board in the United States
which occurred in the period from 1989 to 1991 and that estimates
call for a moderate growth rate of 2 to 3 percent. [29],[30] In light of the evidence and
based on its review of the various forecasts filed in this
proceeding, the Tribunal is of the view that the more plausible
scenario is that the demand for gypsum board in the United States
will continue to grow, at least marginally, in 1998 and 1999.

Having reviewed the outlook for demand in the United States, the
Tribunal will now consider the issue of capacity expansion plans.
Westroc and GP Canada provided extensive evidence on announcements
made by US producers regarding their capacity expansion intentions.
The evidence on the record indicates that the announced capacity
additions for 1997 through to 2000, together with an amount for
“capacity creep, [31] ” is estimated to be between 4.5 and 5.0
BSF.

The Tribunal believes that the estimated 4.5 to 5.0 BSF of
planned capacity additions announced for the years 1997 to 2000 may
be somewhat overstated because the volume of capacity that actually
comes on stream can be affected by a number of factors, including
the time frame in which the new capacity will come on stream, the
regional location of the new capacity, regional growth prospects,
the proximity to older high-cost plants, and the structure and
behaviour of today’s gypsum board industry in the United
States.

There are a number of factors which may influence the time frame
in which the new capacity additions will come on stream and which
may lead to possible delays in the actual volume of operational
gypsum board capacity available for the period from 1997 to 2000.
They include securing a reliable source of raw material, the
existence of a complex licensing and approval process, location and
acquisition of the land site, ordering and installing the necessary
equipment, environmental hurdles and the economic climate at the
time when the capacity is scheduled to actually come on line. These
factors all add to the degree of risk associated with meeting the
announced start-up dates. In this respect, the Tribunal believes
that the indicated start-up dates for several of the projects
represent the earliest possible dates and that delays could occur
for various reasons.

In addition to the potential delays in the start-up of new
capacity, the Tribunal believes that there are certain regional
factors which may mitigate the effects of new capacity additions on
the US gypsum board market. Members of the Gypsum Association
receive shipment and capacity data [32] on a national and regional basis. Regional
data provide valuable information on the nine US regions which are
recognized by members of the Gypsum Association. This regional
information allows members to track regional growth rates, as well
as the degree of their participation in each of these markets. This
information also assists producers to better plan their capacity
additions in the regional markets.

In this respect, the evidence shows that the location of some of
the announced new capacity will be in or near deficit markets. For
example, the witness for James Hardie explained that the capacity
that it added in the Pacific Northwest was driven by the fact that
about 50 percent of the market was being served by out-of-area,
high-cost producers and that James Hardie could not meet the market
demand. [33] Even
after the completion of the expansion in Seattle by James Hardie in
1997, there still remains a portion of the market which must be
served by out-of-region producers.

Further, many regional markets continue to have projections of
buoyant economic growth. [34] Evidence suggests that an important amount of
the planned additional capacity is aimed at the current and
forecast shortfalls in supply of gypsum board to certain regional
markets such the Pacific Northwest, the California market and the
West South Central.

In addition, the Tribunal heard testimony that certain new
capacity will be near older, high-cost plants. Testimony of the
witness for GPC indicates that the strategic location of new
capacity will give companies the choice to curtail production to
meet demand, to replace high-cost production, to mothball plants or
production lines (in extreme circumstances) or to refit the
facilities for the production of other products depending on the
economic advantages of the decision at a given point in time. In a
market where there is high demand and high prices, companies will
keep all their plants open, even the high-cost plants. However, if
the market and prices slip, they can curtail the high-cost
production or, if necessary, close the older facilities when the
new lower-cost facilities are fully operational.

Another factor which may lessen the impact of the new capacity
is related to the more consolidated structure of today’s gypsum
board industry in the United States (i.e. larger, more integrated
companies and fewer one-line plants). This consolidation leads the
Tribunal to believe that US producers of gypsum board have an
improved potential and capability, relative to 1992, to curtail
production in times of a downturn in demand, rather than sharply
lowering prices while continuing to produce.

Further, US producers argue that the US gypsum board industry is
now made up of more economically rational market players. [35] After surviving the
difficult times of the early 1990s, the Tribunal believes that the
major US producers are less likely to disrupt the market in which
they all currently participate at profitable levels. In this
respect, the Tribunal agrees with counsel for the exporters who
argued that US producers would strive to curtail their expansion
plans to reflect the emerging actual level of demand. [36] Furthermore, if, as
was suggested, the industry cycle trends towards less severe peaks
and valleys and, instead, has more graduated cycles, [37] the Tribunal considers
that this would also support the contention that US producers may
be in a better position to manage their capacity additions as the
market requires. In this regard, the Tribunal considers that the US
industry is in a better position to manage the implementation of
its plans to increase capacity.

As previously noted, the current demand for gypsum board in the
United States is high, and the national capacity utilization rate
is 95 percent and up to 100 percent for some companies, depending
on the region. This situation, together with the growth in market
demand for gypsum board in the next 12 to 18 months, means that a
certain amount of new capacity is required to keep up with demand.
Clearly, the industry must invest in new capacity if it is to keep
up with the market. The Tribunal recognizes that, in a growing
market, the need to maintain market share is one of the driving
forces behind decisions to add new capacity. Based on the above
considerations, the Tribunal is of the view that only a relatively
small portion of the new capacity expected to come on stream in the
next 12 to 18 months may be in excess of demand during that same
time period.

Having considered the outlook for production capacity of gypsum
board in the United States, the Tribunal will now address the
anticipated capacity utilization rates over the period from 1998 to
2000. Parties in favour of a continuation of the finding believe
that, even with stable demand for gypsum board, the volume of new
capacity which has been announced will result in a much lower level
of capacity utilization in the United States over the next two to
three years. Certain estimates show that the utilization rate will
be about 90 percent in 1998 and will decrease to 79 percent in the
year 2000.

The US producers and CGC, on the other hand, argue that, given
the numerous factors which may lessen the actual amount of capacity
which will come on stream, utilization rates will be well above 90
percent in 1998 and will decrease marginally in 1999 and 2000 to a
percentage level in the high 80s.

The Tribunal believes that, in general, the level of capacity in
the gypsum board industry tends to expand to meet current and
expected future demand. If demand weakens, sales decline and the
natural consequence is idle capacity. Therefore, capacity that was
necessary for peak demand periods becomes excess capacity during a
cycle downturn. In an industry like gypsum board, where demand is
highly dependent upon business cycles and the economic climate in
general, this is a normal expectation.

The Tribunal believes that, given the estimated moderate growth
demand levels for gypsum board in the United States and the
estimated capacity for the US gypsum board industry over the
1998-99 period, the average US capacity utilization levels are
unlikely to fall dramatically. As indicated in Table 3, the average
US capacity utilization levels are projected to be around 92.0
percent in 1998 and to slip to 88.5 percent in 1999, a rate which
the Tribunal feels is not unreasonably low in comparison to the US
capacity utilization rates of approximately 75.0 percent in 1991
and 83.0 percent in 1992. [38] The Tribunal notes that these estimates do not
take into account the possibility that US producers may close some
facilities or curtail production through shift reductions [39] in order to support
the market and price of gypsum board if demand does fall.

Notwithstanding the fact that there may be an amount of capacity
which could be in excess of the forecast demand, the Tribunal
believes that the US market for gypsum board, particularly over the
next 12 to 18 months, will be able to absorb most of the new
production from the capacity additions that are likely to come on
stream in that same time period. Accordingly, the Tribunal is not
persuaded that US capacity utilization levels are likely to fall
significantly in the short run.

Having reached a conclusion on the outlook for US capacity
utilization, the Tribunal next considers the prospects for US
gypsum board prices. The Tribunal heard testimony from both
Canadian and US producers that, if the industry can maintain
capacity utilization levels close to 90 percent, the price of
gypsum board will tend to be relatively stable. When utilization
levels fall below 90 percent, prices also begin to fall. [40] In this regard, since
the current capacity utilization levels are very high, the Tribunal
believes that there is room to allow for some moderating in demand
growth without any appreciable impact on gypsum board prices.
Further, in light of testimony that US producers recognize that
their high-cost plants restrict efficiencies, these plants may be
the first to operate at lower utilization levels, or indeed be shut
down, as the need or opportunity arises.

Although parties in favour of a continuation of the finding
argued strongly that there is a direct relationship between
capacity utilization levels and price, the Tribunal notes that the
evidence on the record indicates that there are many other factors
which also influence the price of gypsum board. For example, price
may be influenced by certain regional factors, [41],[42] such as strong or weak demand,
which affect capacity requirements, the intensity of competition,
the proximity of the market to high-cost or low-cost plants, the
cost of raw materials to producers in any given region, economic
conditions [43] and
the sale of gypsum board to brokers. [44]

Thus, when taking into consideration the influence that the many
different factors have on price, the Tribunal does not believe that
there is likely to be a decline in the price of gypsum board in the
United States similar in magnitude to that which occurred between
1989 and 1991.

In light of the above, the Tribunal is of the view that the
interaction between the forecast for continued modest growth in the
demand for gypsum board and the planned new capacity which is
likely to actually come on stream in the United States will not
give rise to excess capacity which would be large enough either to
push US prices down dramatically or, more importantly, to create
the pressure that would drive US producers to sell gypsum board to
Canada at dumped prices.

The Tribunal considers that US producers would either delay the
implementation of new capacity if demand does not warrant or
support it or they would curtail or close the production of gypsum
board at high-cost, less efficient plants. Such rational business
decisions would necessarily limit the amount of new capacity which
would come on stream in a weakened market situation and, in turn,
utilization levels would not drop precipitously.

Further, the evidence shows that the US producers of gypsum
board are currently operating in a strong US market, at
historically high levels of production and at high prices. The
Tribunal is persuaded by the evidence that the current and
projected price levels in Canada, together with the current high
price levels and demand for gypsum board in the United States,
provide little incentive for US producers to sell gypsum board to
Canada now or in the near future.

The Tribunal recognizes that there is a possibility that some of
the more pessimistic forecasts for demand, capacity, utilization
and prices of gypsum board in the US market presented for late 1999
and beyond may materialize. However, because longer-term forecasts
are subject to greater uncertainty, the Tribunal believes that more
weight and consideration should be given to the near future rather
than to the more distant future. The Tribunal cannot continue the
finding based on the chance that something negative may happen in
the more distant future.

In light of the foregoing, the Tribunal concludes, on balance,
that there is no likelihood of resumed dumping of gypsum board in
Canada.

Given this conclusion regarding the likelihood of dumping, the
matter of likelihood of material injury caused by a resumption of
dumping does not need to be considered by the Tribunal. However,
the Tribunal would like to make a few comments on the condition of
the domestic industry.

The Tribunal notes that the performance of the domestic
producers has been positive despite the lack of sustained growth in
the residential and non-residential construction sectors in
Canada.

The Tribunal considers that prospects for the domestic industry
appear to be good for both domestic and export markets. Recent
forecasts suggest that Canadian housing starts for the whole of
1997 will be 19 percent above 1996 levels. Forecasts for 1998 call
for housing starts to rise further by close to 10 percent. [45] In addition, the
continuation of export sales, in the Tribunal’s opinion, will
remain the key to the continuing success of the domestic industry.
In this regard, there are indications that exports by the Canadian
industry to the United States may increase by 9 percent in 1998 and
remain steady in 1999. [46] There is no indication that this positive
outlook for the domestic industry is likely to change in the
foreseeable future. As already stated, the Tribunal puts more
weight on the shorter time frame than it does on events that may
occur beyond 1999. The Tribunal considers it appropriate to take
this position because of the increasing uncertainty of events which
may or may not take place in the longer term.

In summary, the domestic industry’s positive financial results,
combined with a particularly strong export performance and
increases in employment and capacity utilization levels, are all
positive developments. The domestic industry has used the period
provided by the finding to turn losses into significant gains and
to strengthen its position in the domestic and export markets, in a
climate of increasing selling prices.

7. DSG
(desulphogypsum) is produced as a by-product of a sulphur dioxide
removal process used by particular coal-fired thermal electric
generating stations. This product, which was formerly a waste
material destined for landfill sites, is now transformed into a
recyclable, high purity gypsum board product.

14. As signed in
Marrakesh on April 15, 1994 (in force for Canada on January 1,
1996).

15. Stainless Steel
Bars and Stainless Steel Wire in Cut Lengths, Originating in or
Exported from Brazil, the Federal Republic of Germany, France,
Japan, the Republic of Korea and Spain , Order and Statement of
Reasons , July 20, 1990.

16. Agreement on
Implementation of Article VI of the General Agreement on Tariffs
and Trade , signed in Geneva on April 12, 1979.

18. Certain Nickel
and Nickel Alloy Seamless Tubing Imported from Japan or Otherwise
Introduced into the Commerce of Canada by a Manufacturer, Producer,
Vendor or Exporter in Japan , Canadian International Trade
Tribunal, Order and Statement of Reasons , December 21, 1990.

21. The evidence on
the record upon which the Tribunal must base its decision does not
contain information relating to the economic events which unfolded
in Asian countries during the last quarter of 1997. Therefore, any
potential impact that this may have on the US economy in 1998 could
not have been taken into account.